The format could be really simple like attack, sustain and release or similarly the on, loop and off parts of a synth sound. I imagine that the on and off parts could have a fair amount of movement in them and people could pull various things out of those clips. Loops are good for game stuff. Maybe the library could be organized on a macro level depending on what the range is like bass, mid and high.

I would imagine that recording people in a public space is legal, just like the paparazzi can take photos. But if you're on private property (in a restaurant) I'm sure there is some law somewhere relating to it. What are the chances of them knowing or proving it? Probably nil. Good question though, it would be great to find out for sure.